Budgeting for Retirement Requires a Good Estimate of My Personal Rate of Inflation for 2012

I find the rates of inflation quoted in financial plans for retirement fascinating. I remember in the late 1980s when they were estimating 10-15% rates of inflation. Now they tend to estimate 2 or 3% as the rate of inflation we should use for retirement planning.

The reality is that no one really knows. You have to pick a number out of a hat and use it.

However one number I can truly know is what my personal rate of inflation was for

the previous year (2012.) Actually, since I track my expenses every year, I could figure it out for the last 13 years easily and for more with a bit of digging for an older file.


What Was My Personal Rate of Inflation for 2012?

There were a few surprises when I worked through it. The following are my rates of inflation on various goods and services:

  • Water 11.34%
  • Internet access 6.7%
  • Electricity 6.57%
  • Cable for TV 5.2%
  • Car 2 insurance 3.96%
  • Property taxes 2.1%
  • Telephone including long distance 1%
  • Car 1 insurance 0.7%
  • House insurance 0.1%
  • Natural gas -13.3%
  • Gasoline -38.1%


A bit of thinking led to the following interpretations:

Water rates went up to help fund waste water treatment. We only used 1 m3 more water despite the drought.

Electricity switched from a two-tiered pricing structure to time-of-use pricing in mid-year. Given the hot summer compared to 2011, it’s surprising our rate didn’t increase more. We did, however, only run the air conditioning after 7 p.m. and before 6 a.m.

The insurance increased on Car 2 because it is not the same car. It is now a 2012 to replace the former 2004.

Natural gas was much cheaper in 2012 due to shale gas production volumes. I went back and checked and the price is down 1% per m3. The bulk of the savings, though, was due to the extremely mild winter and therefore lower natural gas usage.

Gasoline was way down because we didn’t have 2 cars for 6 months, we only had 1. We also didn’t make a road trip to the Maritimes this year. The actual average price per litre was up for the year.

The Combined Rate of Inflation for 2012

Now the above figures are a good explanation for why percentages are not always reliable indicators. It’s very hard to look at those numbers and estimate our total inflation for 2012.

I did calculate the percentage increase in spending to pay for all of the above items, with gasoline included. Our rate of inflation was minus 3.1%. That’s right; we actually spent less on those items in 2012 than in 2011.

However, a more realistic rate of inflation took out the impact of the substantial savings for gasoline. When I recalculated without our gasoline costs, our personal inflation rate for 2012 was 1.6%.

That’s right, only 1.6%.

I was quite surprised. Admittedly, it would have been worse if we’d had 2 cars for the whole year and if the weather had been colder in the winter.

What Inflation Factor Do I Use to Plan for Retirement?

For retirement purposes, I usually assume inflation will be astronomical and investment returns will be pitiful. This gives me more incentive to save lots.

I doubt you can have too much money for retirement. Your heirs will love you if you can provide for your own needs in your old age. And your heirs will love you even more if you die prematurely and they get all the loot!

Further Reading

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Do you ever calculate your personal rate of inflation? What was it for 2012? Please share your experiences with a comment.

3 thoughts on “Budgeting for Retirement Requires a Good Estimate of My Personal Rate of Inflation for 2012

  1. Don’t accept inflation on your cable bill. Spend a half hour, call up a competitor, ask their deal, call up your provider, get them to match it or cancel on the spot. Go for some DEflation this year.

    • We will be going OTA later this year. I could just unplug it today as I don’t watch TV. I waste my screen hours on blogs. : )

      Telephone is another one where I’m already in negotiations. The problem is in our neighbourhood on one side of the street you can only get reliable internet and telephone from one company. On the other side of the street it’s only reliable from their competitor. Everyone hates it, but there’s enough evidence to show they are right. You should see how badly the wiring is placed. (Yes, I’m sure some of it is fibreoptic cable. I also call CDs albums and DVDs tapes.) It’s lucky we get anything at all when we pick up the phone.

      Ah, technology. How it enhances our lives and improves our leisure time…..There’s few things I like better than listening to messages about how important I am while waiting on a retention department supervisor……

  2. Pingback: Weekend Reading: Good Reads, Great Deals Edition

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